By analyzing existing cross correlation between Sprint and Wells Fargo you can compare the effects of market volatilities on Sprint and Wells Fargo and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Sprint with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprint and Wells Fargo.

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Can any of the company-specific risk be diversified away by investing in both Sprint and Wells Fargo at the same time? Although using correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combing Sprint and Wells Fargo into the same portfolio which is an essential part of fundamental portfolio management process.

Diversification Opportunities for Sprint and Wells Fargo

0.32

Correlation

Weak diversification

The 3 months correlation between Sprint and Wells is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sprint Corp. and Wells Fargo Company in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and Sprint is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Sprint are associated (or correlated) with Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo has no effect on the direction of Sprint i.e. Sprint and Wells Fargo go up and down completely randomly.

Pair Corralation between Sprint and Wells Fargo

Taking into account the 30 trading days horizon, Sprint is expected to generate 0.62 times more return on investment than Wells Fargo. However, Sprint is 1.6 times less risky than Wells Fargo. It trades about 0.05 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.02 per unit of risk. If you would invest 806.00 in Sprint on May 7, 2020 and sell it today you would earn a total of 56.00 from holding Sprint or generate 6.95% return on investment over 30 days.

Sprint Corp. vs. Wells Fargo Company

Sprint Risk-Adjusted Performance

Over the last 30 days Sprint has generated negative risk-adjusted returns adding no value to investors with long positions. In defiance of relatively weak forward-looking signals, Sprint may actually be approaching a critical reversion point that can send shares even higher in July 2020.

Wells Fargo Risk-Adjusted Performance

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 1 (%) of all global equities and portfolios over the last 30 days. Despite somewhat unsteady basic indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in July 2020.

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